FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

Notice to FDIC Involving Transfer of Assets Between
FDIC-Insured and FSLIC-Insured Institutions

FDIC-88-10

January 21, 1988

J. William Via, Jr. Counsel

This is in response to your memorandum of December 14, 1987,
transmitting a copy of a letter (dated December 3, 1987) from the
Federal Home Loan Bank Board *** and, raising questions about this
subject.

I.

Section 18(c)(12) of the FDI Act, as amended by CEBA, § 504(b),
requires that an insured bank involved in a transaction encompassed by
that provision notify the FDIC in writing at least 30 days prior to
consummation of the transaction. The question raised is whether this
notification should be made to the appropriate FDIC regional office of
(I surmise) to FDIC's principal office. This issue, of course, is not
addressed by the statute, and the FDIC appears to have no regulatory
provision that clearly applies (see 12 C.F.R., Part 303 and § 303.5).
In the circumstances, an affected bank that gives timely notice in good
faith to either office would, in my judgment, most likely be held to
have complied (or substantially complied) with the requirement. Of
course, if the FDIC wants such notices to be sent to one of these
offices to the exclusion of the other it is empowered to impose such a
requirement through regulation.

II.

Section 18(c)(12), as amended, states in effect that the provisions
of section 18(c) of the FDI Act, popularly known as the Bank Merger
Act, "shall not apply to any transaction where the acquiring,
assuming, or resulting institution is an [FDIC] insured Federal
savings bank or an institution insured by the Federal Savings and Loan
Insurance Corporation", but imposes on "any insured bank involved
in the transaction" the notice requirement discussed in the
preceding paragraph, and also stipulates that, "if any approval by
the Federal Home Loan Bank Board or the Federal Savings and Loan
Insurance Corporation is required [under laws administered by those
entities] in connection therewith", then the cognizant entity must
provide the FDIC with notification of the application for approval,
consult with the FDIC before disposing of the application, and notify
the FDIC of its disposition. The question raised is, what kinds of
applications trigger these notification and consultation requirements
for the FHLBB or the FSLIC. The answer is that section 18(c)(12)
encompasses every transaction that, but for the exclusionary
language of its first clause, would be subject to the bank merger
provisions of section 18(c); the notification and consultation
requirements for the FHLBB or the FSLIC apply in the case of any such
transaction that requires any approval by either of those entities
(under laws administered by them).

As anticipated by the letter from the FHLBB, the rub is that, except
in the case of a merger or consolidation (or a complete "purchase
and assumption" transaction), it is
sometimes difficult to ascertain
whether or not the bank merger provisions of section 18(c) apply to a
given transaction. The letter cites, for example, the case of the
"transfer" by an insured bank of some, but not all, of its assets
to (i) an FSLIC-insured institution or (ii) a Federal savings bank.

In the first instance, section 18(c)(1) would apply (but for the
exclusion in section 18(c)(12)) if the transfer of assets were "in
consideration of the assumption of liabilities [by the FSLIC-insured
institution] for any portion of the deposits made in such [asset
transferring] insured bank" (per section 18(c)(1)(C)), and not
otherwise, in general. However, a transfer of assets, or series of such
transfers, even though unaccompanied by any deposit liability
assumption, might be of sufficient magnitude to cause the FDIC to
assert that the insured bank is attempting a de facto merger and to
claim jurisdiction under section 18(c)(1)(A) (if the exclusion in
paragraph (12) does not apply), lest the purposes of the bank merger
provisions be subverted, but just what is a sufficient magnitude for
this purpose is necessarily subject to judgment on a case-by-case
basis. While such cases should be rare, the practical step, I suggest,
is to alert the FHLBB-FSLIC to this possibility and request that the
FDIC be notified even in questionable cases. The notices after all have
some potential utility, I take it, for the FDIC's deposit insurance
function and supervisory responsibility, especially concerning a bank's
managerial and financial resources and prospects, whenever there is a
transfer of a "significant" volume of its assets, albeit less
than all or less than half or even less than one-quarter, perhaps (but
I do not feel confident in suggesting a minimum). This potential
utility, I suspect, is a principal reason Congress imposed the notice
requirement.

As for the second case cited in the FHLBB letter, section
18(c)(2)(C) would apply (but for the exclusion in paragraph (12)) if a
Federal savings bank should, "either directly or indirectly, acquire
the assets of . . . any other insured bank", but (as in the first
case) this leaves open the question of whether the section applies if
some, but not all, of the assets are acquired. The FDIC has heretofore
claimed jurisdiction under this section when less than all of the
assets of the selling bank were being acquired, if there was a
(perceived) plausible basis for concluding that the acquisition would
have potential significance under one or more of the relevant statutory
factors, so that not claiming jurisdiction could effectively undermine
the bank merger provisions (e.g., Bank A proposes to buy
Bank B's entire loan portfolio or Bank A proposes to buy, let us say,
the real estate loans of every other insured bank in its market). ***.

In sum (and in partial reiteration), I suggest that the FDIC *** be
notified by the FHLBB-FSLIC of every transaction (including those
involving only partial asset acquisitions) that even remotely appear to
the FHLBB-FSLIC as possibly falling within the purview of section
18(c)(12), assuming, of course, as the statute requires, that FHLLB or
FSLIC approval of the transaction is required.

III.

The final question raised by the FHLBB letter is whether section
403(e) of the National Housing Act, as added by CEBA, § 504(a),
requires the FSLIC to notify and consult with the FDIC only when an
FDIC-insured savings bank converts to FSLIC insurance or does it apply
also to such conversions by other FDIC-insured banks. The answer
(though the statute is not well written) is that it applies to all such
conversions by FDIC-insured banks.

The first sentence of section 403(e) provides that if a savings bank
that is an "insured bank" as defined in section 3(b) of the FDI
Act converts to a type of institution that is eligible to be insured by
the FSLIC and such insurance is granted, then when such insurance
becomes effective (as stipulated by the FSLIC) the institution
automatically loses its status as an "insured bank". The
obligation of the FSLIC to notify and consult with the FDIC is found in
the second sentence of section 403(e), the language of which
effectively embraces (not only the savings bank case of the first
sentence, but also) all conversions by FDIC-insured banks to FSLIC
insurance (just as all such conversions prior to CEBA,
§ 504(a),(b)(2) were conversions to the status of a noninsured bank
or institution under FDI Act § 18(i)(3)). This conclusion is
buttressed by the language used in the discussion of
CEBA, § 504 at page 175 of the
accompanying Conference Report (notwithstanding that the caption speaks
only of conversions by FDIC-insured savings
banks).